Crypto Accounting Matters, and Tether is (finally) moving in the right direction
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There has been no shortage of controversy and debate in the blockchain and crypto asset sector, and one organization that has been at the center of much of it has been the company Tether
Apart from the headlines and the regulatory pressure that has been brought against the organization in a more general sense, there has also been a more nuanced issue that has received greater attention; the accounting and auditing practices of the firm. While accounting and auditing standards and treatment are not usually associated with the most exciting headlines, they have certainly become the center of attention with regard to Tether.
Simply put, and until very recently, Tether and USDT had never undergone a full attestation by an accounting firm that was (widely believed) up to the task of handling the attestation of assets totaling over $60 billion. In August 2022, this changed, with the announcement that Tether had hired BDO Italia to 1) take over the attestation work previously done by a much smaller firm, and 2) work towards a monthly attestation delivery.
Let’s take a look at why this announcement will have a positive impact on the cryptoasset space beyond just improved reporting for Tether.
Audit quality will improve. Crypto-assets of all kinds have been driven by the private sector ever since the initial launch of bitcoin, but that private sector leadership has not spurred the creation of crypto-specific accounting/auditing rules by regulatory bodies. To compound the dubious reporting and results that had previously been put forth by Tether – and others – the frequency and quality of those reports were also questionable. By bringing an accounting and auditing firm with global reach and in-house expertise into the mix, the quality of these specific engagements will improve.
An additional benefit of this combination would be that, as the thinking goes, if a company with the shaky track record of Tether can improve its auditing and reporting practices, it would set a positive example for other organizations to do so. Given the recent spate of bankruptcies and failures by exchanges and other crypto-related organizations, better audits and reporting would go a long way to improving the reputation and operations of the industry.
Greater regulatory clarity. It’s no secret that regulators, and some specific politicians, have taken a rather negative view of crypto-assets ever since these topics became mainstream, with several high-profile members of Congress calling for – effectively – bans on crypto-assets. A large part of this hesitation, doubt and outright hostility that exists on the part of politicians towards crypto actors has to do with the lack of information available for assessment. One of the most common refrains that has been exploited by regulators and policy makers is that regulations will not be able to keep up with market players.
In addition to the volatility that has been – some would say incorrectly – stated as the reason why greater regulatory clarity is impossible, the lack of consistent and standardized information from exchanges and crypto issuers is also a factor in this assessment. Better auditing, while not a perfect solution to these problems, will help to address these open elements.
Increased adoption. Combining the positive effects of better auditing, improved reporting and more regulatory clarity, the market effect appears to be that the adoption and use of crypto-assets as a medium of exchange will increase. On the institutional front, which has been led by the introduction of stablecoins, better reporting and disclosure around these instruments will help increase confidence in organizations entering the crypto space. From the individual perspective, it makes logical sense that as the general market attitude and confidence in crypto increases, the percentage of consumers who are comfortable using crypto will increase.
Given the fact that stablecoins, those that are actually as stable as advertised, continue to lead the way toward wider crypto adoption, better auditing can be traced directly to more widespread use of crypto as a medium of exchange.
Auditing and accounting rarely make headlines, and even less often do they make headlines for positive reasons. The recent announcement that Tether, the much-maligned yet largest stablecoin on the market, will partner with BDO Italia to create more real-time assurance and attestation reports is one of the rare examples of a positive audit announcement. Better reporting, more consistency and greater trust in the stablecoin sector at large will help increase usage by both institutions and individuals; it is something that should be celebrated by all market players. As always, the accounts are important, and mean more than many market participants might think.
